Marvell Technology Group Management Discusses Q2 2013 Results - Earnings Call Transcript

Marvell Technology Group (MRVL)

Q2 2013 Earnings Call

August 16, 2012 4:45 pm ET

Executives

Sukhi Nagesh - Vice President of Investor Relations

Sehat Sutardja - Co-Founder, Executive Chairman, Chief Executive Officer, President, Chief Executive Officer of Marvell Semiconductor Inc, President of Marvell Semiconductor Inc and Director of Marvell Semiconductor Inc

Clyde R. Hosein - Chief Financial Officer, Principal Accounting Officer and Secretary

Analysts

Doug Freedman - RBC Capital Markets, LLC, Research Division

Sanjay Devgan - Morgan Stanley, Research Division

Glen Yeung - Citigroup Inc, Research Division

Ryan Carver - Crédit Suisse AG, Research Division

Harlan Sur - JP Morgan Chase & Co, Research Division

Bobby Gujavarty - Deutsche Bank AG, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Blayne Curtis - Barclays Capital, Research Division

Ryan Goodman - CLSA Asia-Pacific Markets, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Marvell Technology Group Limited Earnings Conference Call. My name is Jeff and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Sukhi Nagesh, Vice President of Investor Relations. And you have the floor, Mr. Nagesh.

Sukhi Nagesh

Thank you, Jeff, and good afternoon, everyone. Welcome to Marvell Technology Group's Second Quarter Fiscal 2013 Earnings Call. I'm Sukhi Nagesh, Vice President of Investor Relations. And with me on the call today are Sehat Sutardja, Marvell's Chairman and CEO; and Clyde Hosein, Marvell's CFO. We will all be available during the Q&A portion of the call today.

If you have not obtained a copy of our current press release, it can be found at our company website under the Investor Relations section at Marvell.com. We will also be posting a slide deck, summarizing our quarterly results in the IR section of our website for investors. Additionally, this call is being recorded and will be available for replay from our website.

Please be reminded that today's discussion will include forward-looking statements that will involve risks and uncertainties that could cause our results to differ materially from management's current expectations. The risks and uncertainties include our expectations about sales of new and existing products, including statements about our hybrid HDD, SSD, TD, TD-LTE, FDD-LTE, Wi-Fi and PON products. Statements of our general trends in the end markets we serve and future growth opportunities statements about market share, statements regarding our financial prediction for the third quarter of fiscal 2013 and our expectations about long-term growth. To fully understand the risks and uncertainties that may cause the results of differ from our expectations and outlook, please refer to today's earnings release, our quarterly latest report on Form 10-Q and subsequent SEC filings for a detailed description of our business and associated risks. Please be reminded that all of our statements are made as of today and Marvell undertakes no obligation to revise or update publicly any forward-looking statements. During our call today, we will make reference to certain non-GAAP financial measures, which exclude the effect of stock-based compensation, amortization of acquired intangible assets, acquisition related costs, restructuring costs and certain onetime expenses and benefits that are driven primarily by discrete events that management does not consider to be directly related to our core operating performance. Pursuant to the Regulation G, we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second quarter 2013 earnings press release, which has been furnished to the SEC on Form 8-K and is available on our website in the Investor Relations section.

Now with that, I'd like to turn the call over to Sehat.

Sehat Sutardja

Thanks, Sukhi, and good afternoon, everyone. Today we reported second quarter revenues of approximately $860 million, reflecting an increase of over 2% sequentially. While this was below our initial expectations, we continue to deliver good profitability with second quarter non-GAAP gross margin of 53.6%, operating margin of 17% and earnings per share of $0.24. We also continue to return value to our shareholders, as we repurchased about 20 million shares and paid the company's first quarterly dividend of $0.06 per share.

Our business was impacted by the slowing macroeconomic environment, starting in the middle of the quarter. We also faced continued challenges with lower volumes at our leading North American cellular customer, while demand slowed down at our Chinese smartphone customers.

In addition, our increasing presence in price-sensitive consumer markets is modestly impacting our gross margin.

Now let me provide more color on our performance and expectations across our end markets. First in our storage end markets, Q2 revenues increased by 7% sequentially. Storage now represents about 47% of revenues. The recent macro slowdown resulted in lower PC sales in Q2, and our drive customers are now forecasting flat market demand in calendar Q3. If true, this will be the first time in history that HDD demand is flat in Q3. We believe this conservative view in today's environment is healthy for the industry as it reduces the risk of inventory buildup. However, the drive industry may have to deal with the potential for improved demand, for example, as a result of the upcoming Windows 8 launch.

Beyond the near-term end demand issues, there are a number of positive things happening in our storage business that I want to highlight. First in Q2, we continue to see strong growth for our 500-gigabyte per platter mobile drives, which grew over 30% in Q2 and represented over 1/3 of our unit shipments. As you know, we are the only provider of this 500-gigabyte mobile technology. We increased our shipments of 500-gigabyte per platter products to a major customer for their mobile drives, where we are a new supplier. We are now at about 10% of their core mobile platforms and expect our share of their mobile drives to increase over the next few quarters.

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